Law bans unlocking of cell phones

Updated 12:10 pm, Tuesday, January 29, 2013

Advertisements for the iPhone 5 are displayed at an Apple store in New York City. It is now once again illegal to unlock your cell phone in the USA.

Advertisements for the iPhone 5 are displayed at an Apple store in New York City. It is now once again illegal to unlock your cell phone in the USA.

Photo: Spencer Platt, Getty Images

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A Samsung's Galaxy S3, one of the top selling phones in America.

A Samsung's Galaxy S3, one of the top selling phones in America.

Photo: JUNG YEON-JE, AFP/Getty Images

Law bans unlocking of cell phones

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As of Saturday, it became illegal to unlock your cell phone. That means, even if you own it outright, you can't alter the device to make it to work on another carrier without risking a fine.

Why shouldn't you be able to do whatever you want with your own property? Because cell phone companies want to sell more phones, and the Library of Congress rolled over for them.

That's not how the industry puts it, of course, but it is the truth.

The broadly written Digital Millennium Copyright Act of 1998 made it illegal to create devices or services that allowed people to sidestep technology protecting copyrighted works. It was mainly geared toward digital rights management tools of the day that prevented you from making multiple copies of downloaded songs or DVDs.

But the Library of Congress, tasked with carving out exceptions every few years under the law, has excluded unlocking cell phones several times because, well, it has nothing to do with copyrighted works!

Nevertheless, under pressure from carriers and the CTIA-The Wireless Association trade group, the Library of Congress switched its stance and agreed to eliminate that exemption in October. The change went into effect Saturday.

Now if you unlock your phone for your own use, you could face a suit or fine. Businesses that seek to profit from selling unlocked phones, the area where carriers are more likely to focus their attention, could face criminal charges.

It's roughly equivalent to declaring that you can plug your TV into Comcast cable service, but not Time Warner. The only difference is that, in the case of phones, your carrier often subsidizes the initial purchase price. And that's where the industry is hanging its argument.

Subsidies cited

Michael Altschul, general counsel for CTIA, told the New York Times that prohibiting people from unlocking their phones protected the carriers' investments in the subsidies. Otherwise, he suggested, people could unlock their devices and sell them at a higher price, an abuse that could threaten the industry's ability to continue providing the subsidies.

"It's allowing that business practice to go forward at a time when the price of devices continues to grow," Altschul said.

But this largely ignores the way the subsidies actually work - and the fact that carriers have generated huge profits under this model for the years while the exemption was in effect.

I may get to buy an iPhone for what seems like $200, instead of, say, $600, but in exchange I pay for that difference over the course of a two-year contract.

I can't just buy a subsidized phone, unlock it, sell it and collect a cool profit. If I unload the phone, I'm still obligated to either continue paying through the end of my contract or to cough up a sizable early-termination fee. Both are intended the cover the cost of the up-front subsidy.

For expensive phones, AT&T's termination fee is $325 minus $10 for every month that has already passed on the contract.

"The price of an unlocked iPhone (especially in countries outside of the U.S.) may be much greater than $325 plus the $200 subsidized price a customer pays - creating an opportunity for resale," Altschul said in an e-mail response to my inquiry.

Cost still significant

I suppose. But if you managed to sell your iPhone the day you bought it, AT&T is still walking away with $525.

That's below retail for an unlocked phone, but almost certainly not below the company's cost. And since it would require signing up for a contract and the hassle of selling the phone, I can't imagine some vast criminal conspiracy to exploit this relatively narrow price gap one phone at a time.

And if there actually was rampant abuse, the industry always has the option of raising the early-termination fee or initial cost.

'Absurd' situation

But that's not what any of this is about.

This is about carriers keeping people on their networks and squeezing the aftermarket for phone sales. In other words: It's about enormously profitable companies leveraging the legal system to make more money still, at the expense of consumers.

"You've got the Library of Congress purporting to regulate the aftermarket in mobile phones. The absurdity of that situation highlights the problems" with the Digital Millennium Copyright Act, said Mitch Stoltz, staff attorney at the Electronic Frontier Foundation in San Francisco. "But a lot of electronics companies have used the law opportunistically."

Indeed, Chamberlain Group, a maker of garage-door openers, sought and failed to exploit the law to prevent its rival from selling a universal remote. Printer company Lexmark tried and failed to use it against a company offering to refill toner cartridges.

What did either have to do with copyright law? Exactly as much as unlocked phones.

But what really infuriates me here is that these are the very companies that cry about the importance of the free market every time someone threatens to raise their taxes or impose new market regulations. Yet they're perfectly happy to stomp on the property rights of their own customers.

Unless I'm using the phone I bought and paid for to bludgeon someone, what business is it of carriers, the Library of Congress or law enforcement what I do with my personal property?